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CA Real Estate Finance Flashcards

1
Q

Reliance on borrowed capital more than on equity funds would be known as the use of

secondary mortgage markets.
hypothecation.
disintermediation.
leverage.

A

Leverage

page 23

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2
Q

The real estate cycle begins anew when

supply equals demand.
supply exceeds demand.
demand exceeds supply.
supply and demand are ignored.

A

demand exceeds supply.

Page. 26

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3
Q

A fundamental aspect of real estate finance is the ability of borrowers to remain in possession and control of their property. This is defined as

a lien.
collateral.
leverage.
hypothecation.

A

hypothecation.

p.22

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4
Q

Real estate finance is basically a manifestation of our

supply and demand economic system.
ability to pay cash for our property.
government sponsored home ownership program.
credit system economy.

A

credit system economy.

p.21

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5
Q

One way to increase a property’s value without adding any physical improvements is to

lease it.
rezone it.
sell it.
refinance it.

A

Rezone it

Page. 24

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6
Q

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was designed to

minimize the potential for fraudulent lending activities.
control interstate real estate transactions.
reduce the popularity of adjustable rate mortgages.
eliminate the use of leverage in real estate investing.

A

minimize the potential for fraudulent lending activities.

Page. 20

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7
Q

The fact that a 1,500 square foot house sells for $300,000 in Los Angeles, $85,000 in Fresno, and $45,000 in El Centro is based on the property’s fixity and its being subject to the economies of which of the following markets?

Local
International
National
Regional

A

Local

Page. 23

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8
Q

Lenders having a cash surplus in a low demand area would most likely

lower interest on deposits to reduce their surplus.
purchase loans in the secondary market.
raise the interest rates on new loans to raise profits.
sell loans in t

A

purchase loans in the secondary market.

Page. 25

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9
Q

Disintermediation occurs when

savings withdrawals exceed savings deposits.
healthy banks acquire defunct thrift institutions.
the nation’s rate of savings declines.
supply exceeds demands.

A

savings withdrawals exceed savings deposits.

Page. 22

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10
Q

The demographics of a real estate cycle would probably include all of the following inputs except the population’s

ages.
location.
family structure.
religion.

A

Religion

Page. 27

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11
Q

Economic stability is linked with the supply and costs of money. Thus, all of the following statements are correct, except the

lower the costs of money, the greater the economic activity.
more money in circulation, the greater the economic activity.
higher the costs of money, the greater the economic activity.
less money in circulation, the less the economic activity.

A

higher the costs of money, the greater the economic activity.

P. 43

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12
Q

The Federal Reserve is

controlled by the Federal Deposit Insurance Corporation.
under the Department of Housing and Urban Development.
a central banking system.
a public stock corporation.

A

a central banking system.

P.40

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13
Q 
When the Federal Reserve raises its members’ reserve requirements, it is acting to
Correct
  increase financial activities.
  decrease interest rates.
  increase the money supply.
  decrease financial activities.
A

decrease financial activities.

p.43

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14
Q

Deposits in banks and thrifts are insured by the

CLIC.
SAIF.
OTS.
FDIC.

A

FDIC.

p.50

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15
Q 
The Federal Home Bank System
Correct
  supervises the activities of the RTC.
  is under the FDIC.
  is now defunct.
  provides its members with a national market for their securities.
A

provides its members with a national market for their securities.
p.52

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16
Q

All of the following statements about the FDIC are true, except that it

may merge failed institutions with other institutions.
has been eliminated.
controls the Deposit Insurance Fund.
insures depositors accounts.

A

Has been eliminated

P. 50

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17
Q

The California Bureau of Real Estate

deals with franchising of businesses.
settles commission disputes.
investigates complaints against licensees.
provides legal advice to complainants.

A

investigates complaints against licensees.

P.55

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18
Q

The Federal Reserve is currently responsible for all of the following operations except

counteracting inflationary and deflationary movements.
stabilizing values.
maintaining sound credit conditions.
printing money.

A

Printing money

P.51

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19
Q

From an economic theory point of view, money can best be described as a

value unto itself.
standard of value.
commodity.
measurement of inflation.

A

Standard of value

p.36

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20
Q 
Which agency is responsible for handling the assets of failed savings institutions?
Correct
  U.S. Treasury.
  Federal Deposit Insurance Corporation.
  Federal Home Loan Bank.
  The Federal Reserve.
A

Federal Deposit Insurance Corporation.

Page 50

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21
Q

Commercial banks tend to make loans for

construction activities.
mobile homes.
the purchase of land.
subdivision improvements.

A

Construction activities

p.65

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22
Q

The pension funds tend to invest in which of the following types of real estate investments?

Mortgage-backed securities
Personal property loans
Farm loans
Home loans

A

Mortgage-backed securities

Page 73

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23
Q

State-chartered savings and loan associations regulated by the California Department of Savings and Loans are authorized to lend up to what percent of the appraised value of the collateral for a real estate mortgage loan?

100%
70%
80%
90%

A

100%

p.69

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24
Q

Life insurance companies become partners with project developers through the use of commercial loans called

participation loans.
home purchase loans.
bridge loans.
home equity loans.

A

Participation loans

p.71

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25
Q

Which of the following institutional lenders is increasing its participation in real estate finance?

Thrifts
Credit unions
Life insurance companies
Commercial banks

A

Credit unions

p.74

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26
Q

All of the following sources of funds for real estate finance are considered financial intermediaries except

savings institutions.
commercial banks.
sellers as lenders.
life insurance companies.

A

Sellers as lenders

p.61

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27
Q

Which of the following statements is true regarding life insurance companies?

Their costs of funds are higher than other fiduciaries.
Their lending policies are subject to federal control.
They are more concerned with safety than with liquidity.
They prefer small loans for diversity.

A

They are more concerned with safety than with liquidity.

p.71

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28
Q

Savings institutions, major providers of home mortgage loans, are also referred to as

co-ops.
credit unions.
trusts.
thrifts.

A

Thrifts

p.69

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29
Q

The department in a commercial bank that manages relatively large quantities of money and property for their beneficiaries is the

escrow department.
treasury department.
mortgage-lending department
trust department.

A

Trust department

p.66

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30
Q

Which institutional lender has the most flexibility in mortgage lending activities?

thrifts.
credit unions.
life insurance companies.
commercial banks.

A

Thrifts

p.69-70

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31
Q

Mortgage banking services include providing

trust departments.
savings accounts.
checking accounts.
real estate loans.

A

Real estate loans

p.87

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32
Q

Mortgage brokers assume a large part of the responsibility for

appraisals.
loan underwriting.
insuring loans.
qualifying borrowers.

A

Qualifying Borrowers

P.81

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33
Q

Mortgage brokers earn most of their profits from

collection fees.
loan interest.
placement charges.
insurance premiums.

A

Placement charges

P.81

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34
Q

Mortgage bankers

specialize in commercial lending.
manage real estate loans.
originate home mortgage loans.
match borrowers with lenders.

A

Manage real estate loans

p.83

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35
Q

Individuals participate as lenders in real estate mainly by creating

senior loans.
junior loans.
insured loans.
guaranteed loans.

A

junior loans.

p.104

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36
Q

The payments on revenue bonds come from

income from developments.
property taxes.
income taxes.
special assessments.

A

income from developments.

P.96

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37
Q

Private loan companies deal mainly in

senior financing.
FHA-insured home loans.
junior financing.
owner carry-back loans.

A

Junior financing

P.100

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38
Q

Real estate investment trusts are created for all of the following reasons except to

limit personal liability.
pool funds for larger investments.
avoid double taxation.
avoid probate costs.

A

Avoid probate costs

p.90

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39
Q

The payment for the entire amount of principal due at the end of a mortgage loan term is called a(n)

zero coupon.
equity.
balloon.
balance.

A

Balloon

p.83

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40
Q

All of the following terms are associated with a syndicate except

limited partner.
active income.
general partner.
blue-sky laws.

A

Active income

p.91

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41
Q

A veteran’s total monthly obligations equal $1,500. What is the gross monthly income required to qualify for the loan?

$5,172
$4,166
$3,658
$1,500

A

$3,658

P.148

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42
Q

The FHA is responsible for which of the following actions?

Guaranteeing new loans
Issuing new loans
Refinancing existing loans
Insuring new loans

A

Insuring new loans

p.128

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43
Q

All of the following statements describe the advantages of the FHA, except:

there are different loan types.
they have high L/V ratios.
it has lower than market interest rates.
there is no prepayment penalties.

A

it has lower than market interest rates.

P.130

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44
Q

According to Fannie Mae and Freddie Mac guidelines, private mortgage insurance is required on conventional loans when the loan-to-value ratio is in excess of

20%
80%
40%
60%

A

80%

p.116

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45
Q

Which document stipulates the DVA loan amount that establishes the maximum loan available on a specific property?

Certificate of entitlement
Certificate of eligibility
Borrowers’ financial statement
Certificate of reasonable value

A

Certificate of reasonable value

P.147

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46
Q

Most loans today are

DVA loans.
FHA loans.
owner carry-back loans.
conventional loans.

A

conventional loans.

p.112

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47
Q

The FHA allows second mortgages to be acquired on the collateral property, but the second mortgage must not contain

maturities in excess of five years.
variable payments.
a prepayment penalty.
loan-to-value limits.

A

A prepayment penalty

p.142

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48
Q

Under the CAL-VET program, during the period that the veteran is living in the home and making payments, the veteran

is party to a land contract.
has full legal title.
has no equitable interest in the property.
is a tenant in a leasehold estate.

A

Is party to a land contract

p.154

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49
Q

Property serving as collateral for an FHA-insured loan

cannot be valued at $250,000 or above.
must meet certain minimum standards of acceptability.
need not be appraised
must be located within a 50-mile radius of the lender.

A

must meet certain minimum standards of acceptability

p.128

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50
Q

A conventional guaranteed loan may be insured by

a private insurance company.
the DVA.
the FHA.
a title insurance company.

A

A private insurance company

p.115

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51
Q

All of the following developments are exempt from the provisions of the Interstate Land Sales Full Disclosure Act except

residential subdivisions sold exclusively in one state.
cemetery land.
subdivisions of 25 or more lots to be sold nationally.
subdivisions of five acres or more.

A

subdivisions of 25 or more lots to be sold nationally.

P.185

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52
Q

Farm and ranch loans are unique types of real estate finance because their success depends to a large degree on the

nation’s economic circumstances.
borrower’s credit.
property’s productivity.
local zoning ordinances.

A

Property’s productivity

p.164

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53
Q

The Department of Housing and Urban Development includes all of the following functions except the

management of the FHA.
Supervision of the FDIC.
supervisor of the GNMA.
member of the President’s cabinet.

A

Supervision of the FDIC

p.167

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54
Q

The required property reports delivered to potential buyers of lots in subdivisions under HUD’s jurisdiction must include information on all of the following items except

roads.
schools.
churches.
utilities.

A

Churches

P.185

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55
Q

The Community Reinvestment Act is designed primarily to

require banks to meet the needs of all residents in the neighborhoods.
require banks to make subprime loans.
require banks to make low interest rate loans.
finance urban renewal projects.

A

require banks to meet the needs of all residents in the neighborhoods.

P.189

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56
Q

Which of the following types of loans is NOT exempt from California’s usury ceilings?

Credit union loans
Loans from real estate brokers secured by real property
Business loans
Mortgage loans made by savings associations

A

Business loans

P.192

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57
Q

The USDA Rural Development Program aims to

reverse the trend of job loss.
protect rural areas from rezoning.
restrict the import of agricultural products.
stabilize credit costs to ranchers.

A

reverse the trend of job loss.

P.166

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58
Q

The federal regulator of the Farm Credit System is the

U.S. Treasury.
Department of Housing and Urban Development.
Farm Credit Administration.
Farmers Home Administration.

A

Farm Credit Administration.

P.165

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59
Q

Community Redevelopment Agencies are sometimes funded by which of the following programs?

State income taxes
Tax-increment financing
Rental overrides
Federal income tax rebates

A

Tax-increment financing

P.193

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60
Q

Which of the following entities controls the Farm Credit System?

Its members
HUD
The Fed
The U.S. Treasury

A

It’s members

p.165

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61
Q

Lenders solicit borrowers for home equity loans because they can mitigate the risks of these loans by controlling the interest rate and

periodically checking the value of the collateral.
requiring private loan insurance.
obtaining priority lien position.
limiting loan terms to 12 months.

A

periodically checking the value of the collateral.

P.205

62
Q

Equity in one’s home is generally acquired through a paydown of the first mortgage balance or a(n)

decrease in the property’s value.
decrease in general interest rates.
increase in general interest rates.
increase in the property’s value.

A

increase in the property’s value.

p.205

63
Q

When home equity loans become due, borrowers usually

sell their property.
refinance the entire property.
have adequate funds to repay both loans.
seek junior loans.

A

refinance the entire property.

P.205

64
Q

Some lenders provide combinations of first and second mortgages which are known as

split loans.
piggy-back loans.
jumbo loans.
convertible loans.

A

Piggy-back loans

p.202

65
Q

A lifting clause in a junior loan contract allows the

borrower to refinance without disturbing the status of the junior loan.
lender to raise the interest rates periodically.
borrower to sell the property subject to the balance of the loan.
lender to sell the loans.

A

borrower to refinance without disturbing the status of the junior loan.

P.204

66
Q

Unlike other types of home equity loans, home improvement loans may have

longer repayment terms.
lower-than-market interest rates
senior lien position.
no collateral requirements.

A

Longer repayment terms

p.206

67
Q

Land developers sometimes use junior financing to pay for

foreclosed property.
unimproved land.
offsite improvements.
their own offices.

A

Offsite improvements

p.202

68
Q

A property seller may choose to carry back a portion of the sale price when the buyer

pays for private mortgage insurance.
does not qualify for a conventional mortgage loan.
has another outstanding mortgage .
has insufficient cash for the entire down payment.

A

has insufficient cash for the entire down payment.

p.202

69
Q

Home equity loans are popular among borrowers because the interest they pay on these loans is

limited by federal usury laws.
deductible on federal income taxes.
limited by federal and California state usury laws.
exempt from federal income taxes.

A

deductible on federal income taxes.

P.205

70
Q

The risk inherent in junior finance is that the

collateral property value will increase over time.
owner of the property will sell it before the junior loan is repaid.
underlying loan will be repaid before the junior loan.
senior lender will get all the money at a foreclosure.

A

senior lender will get all the money at a foreclosure.

p.203

71
Q

A completion bond for a construction loan is generally issued by

municipal governments.
a savings and loan.
an insurance company.
Freddie Mac.

A

An insurance company

p.228

72
Q

When two or more properties are pledged as collateral for one loan, one of the properties may be removed from the obligation through the loan contract’s

blanket mortgage.
completion bond.
lease-option.
release clause.

A

release clause.

p.230

73
Q

Borrowers are attracted to 15-year mortgages because they allow them to

save money on interest.
suspend making payments for two-month periods.
borrow with zero downpayments.
qualify with even poor credit history.

A

save money on interest.

P.219

74
Q

A three-year adjustable-rate loan

has annual interest rate adjustments for three years.
must be renewed every three years.
has its interest adjusted every three years.
is due in full in three years.

A

has its interest adjusted every three years.

P.216

75
Q

A graduated payment loan with less than interest-only payments results in

negative amortization.
a high risk of default.
the interest rate being adjusted frequently.
the principal balance being reduced quickly.

A

Negative amortization

p.216

76
Q

A construction lender requires all of the following activities to take place before advancing any draws except that the

lender will inspect the construction to confirm that it conforms with the plans and specifications.
builder will provide a take-out commitment for a permanent loan.
builder will deliver lien waivers for the work accomplished during the period.
builder will pay additional points at each draw to offset the time value of money.

A

builder will pay additional points at each draw to offset the time value of money.
p.229

77
Q

Under HUD’s Home Equity Conversion Mortgage, monthly payments are paid to borrowers for

as long as equity is available.
ten years.
as long as they live in the home.
five years.

A

as long as they live in the home.

p.222

78
Q

Under an open-end loan calling for obligatory future advances, the borrower is able to secure additional funds

only after the original loan advance is repaid.
under the terms of the original mortgage.
through a piggy-back loan at a higher interest rate.
by signing an addendum to the mortgage.

A

under the terms of the original mortgage.

P.224

79
Q

An adjustable rate loan drawn at 8% with an annual interest rate cap of 2% and an overall interest rate cap of 4% can be adjusted to which of the following rates in the second year?

8%
12%
11%
10%

A

10%

The initial interest rate is 8%. It can only have a 2% max increase annually. Therefore, the first year is 8%, the second year can be increased by 2%, making it 10% total.

80
Q

A lender’s annual return on a $100,000 wraparound loan drawn at 10% interest-only for five years, subject to an existing $65,000 loan at 7.5% interest is

  1. 64%.
  2. 50%.
  3. 64%.
  4. 14%.
A

14.64%

p.235
Step 1. The lender’s return (profit) of 100K at 10%, however they have existing loan (debt) of 65K at 7.5%

Step 2. Let’s take the 65K. Although they are paying 7.5 (debt) on this 65K, they are also receiving 10% (profit) on it. The difference is 2.5% profit on the 65K (10%-7.5%=2.5%), written as:
65,000 × 0.025 = 1,625

Step 3. We figured the profit for the 65K, now we will calculate the profit for the remaining balance of the total 100K (100K-65K= 35K). This remaining 35K is receiving a full 10%, written as:
35,000 × 0.10 = 3,500

Step 4. Add both profits. Reminder, the first 65K at 7.5% debt is covered (blanket) by the 10% profit, leaving only 2.5% of profit for the 65K. The remaining 35K receives the full 10%.
3,500 + 1,625 = 5,125

Step 5. That additional 35K that the lender provided will bring them a return of $5125. The percent of return would be written as $5,125/35K
$5125 divided by 35K= 0.1464= 14.64%

81
Q

The inclusion of a Due-On-Sale clause in a loan contract

requires the owners to subordinate to a new loan.
is now prohibited by law.
requires the lender’s permission for its assumption.
creates an agreement for future advances.

A

requires the lender’s permission for its assumption.

p.281

82
Q

A charge against a property wherein the property itself is made security for the performance of a certain act describes a(n)

lease.
easement.
lien.
license.

A

Lien

p.250

83
Q

The note executed for a loan

is a lien on real property.
requires an accompanying mortgage.
is a recordable instrument.
is a fully enforceable promise to pay.

A

is a fully enforceable promise to pay.

p.255

84
Q

A Covenant of Seisin in a loan document

stipulates that the borrower has the authority to pledge the property as collateral.
eliminates the statutory redemption period.
allows the lender to dispossess a delinquent borrower.
accelerates the loan balance in a default.

A

stipulates that the borrower has the authority to pledge the property as collateral.

P.266

85
Q

When a property is purchased ”subject-to” the balance of an existing loan, all of the following statements are true except that the

loan terms remain the same.
buyer becomes personally liable for the loan.
buyer must now make the loan payments.
seller remains personally liable for the loan.

A

buyer becomes personally liable for the loan.

p.282

86
Q

A mortgage is a(n)

promise to pay.
lien on the property.
right in a property held by one who is not the legal owner of the property.
right in a property being held by one party for the benefit of another.

A

lien on the property.

P.250

87
Q

Where possible, lenders prefer to use the deed of trust as a financing instrument primarily because it

transfers legal ownership to the beneficiary.
allows the loan to be paid off sooner.
avoids the time and costs of a judicial foreclosure.
allows a higher rate of interest to be charged.

A

avoids the time and costs of a judicial foreclosure.

P.254

88
Q

Covenants that “run with the land” mean that they

must be renewed each time title changes.
expire automatically when a home is built on the land.
expire when the land is sold.
endure no matter how many times the property sells.

A

endure no matter how many times the property sells.

p.250

89
Q

The power of sale clause in a trust deed in a nonjudicial foreclosure allows the lender

a share in the delinquent borrower’s other assets.
a lien against the property.
a shorter foreclosure period.
immediate title upon the borrower’s default.

A

a shorter foreclosure period.

P.254

90
Q

The provisions of a real property sales contract

allow the vendor to charge a high rate of interest to offset the risks involved.
retain title in the name of the vendor.
prohibit the vendee from selling the collateral.
pass legal title to the vendee.

A

retain title in the name of the vendor.

p.270

91
Q

Credit scoring reflects a borrower’s

willingness to repay.
preferences regarding borrowing.
credit risk factors.
financial and social habits.

A

Credit risk factors

p.321

92
Q

Underwriting a loan for real estate finance includes all of the following procedures except checking the

borrower’s ability to make payments.
borrower’s past credit history.
value of the property being pledged as collateral.
willingness of the lender to make the loan.

A

willingness of the lender to make the loan.

p.291

93
Q

Under a conventional loan with principal, interest, taxes, insurance, and homeowners fees totaling $850 per month, a borrower must earn at least which of the following gross monthly incomes to qualify (refer to the table on page 324 in your Finance textbook)?

$2,361
$2,073
$3,035
$2,931

A

$3,035

p.324

94
Q

What is meant by the phrase “net worth is anything you want it to be, while cash is king”?

Net worth is the determining factor in credit evaluation.
Value is in the eye of the beholder.
Lenders place great weight upon a borrower’s cash position.
Assets must exceed liabilities.

A

Lenders place great weight upon a borrower’s cash position.

p.315

95
Q

Borrowers are considered good credit risks and eligible for real estate loans when their

liabilities exceed their assets.
assets equal their liabilities.
current ratio is 2:1.
assets are increasing compared to their liabilities.

A

current ratio is 2:1.

p.315

96
Q

When creating a loan for 50 percent of a collateral property’s value, most of the underwriting will be focused on the

borrower’s past credit history.
property’s location.
value of the collateral.
borrower’s ability to pay.

A

value of the collateral.

p.292

97
Q

The income approach estimate of value for an apartment project generating $200,000 gross annual income with a total of 40% used for operating expenses and a 10% market capitalization rate is

$80,000.
$120,000.
$1.2 million.
$2.0 million.

A

$1.2 million

p.306
$200,000 X 40% = $80,000 operating expenses.

$200,000 – $80,000 = $120,000 Net Operating Income

(Formula on pg. 306): Value = Net Income / Capitalization rate

$120,000/10% = $1,200,000 Answer as stated is correct.)

In the example on page 306 , Operating Ratio Reciprocal (55%) merely states the percentage of expenses that are deducted from Gross Annual Income (maximum income) to arrive at the Net Operating Income. As an aside, many investors look at the percentage of Operating Ratio Reciprocal, looking for it to not exceed more than a certain percentage that they would be comfortable with before purchasing income property. The 10% capitalization rate is the required rate of return hoped for by the potential investor.

98
Q

When checking on a loan applicant’s employment circumstances, all of the following items will be questioned except

length of employment.
wages.
job qualifications.
prognosis for continued employment.

A

Job qualification

p.316

99
Q

The cost approach estimate of the value of a 10-year old house (50-year life expectancy, straight line depreciation), with 2,500 square feet at an $82 replacement cost per square foot, and a lot value of $15,000 is

$15,000.
$164,000.
$205,000.
$179,000.

A

$179,000

p.305

100
Q

If an appraiser finds that the market, cost, and income approaches indicate values of $100,000, $105,000 and $110,000, and they are weighted 50%, 30% and 20% respectively, then the reconciliation value will be

$105,000.
$103,500.
$110,000.
$100,000.

A

$103,500

p.307

101
Q

The two-point discount on the sale of a $175,000 home subject to a new $150,000 loan is

$300.
$3,500.
$350.
$3,000.

A

$3,000

p.338

102
Q

Which of the following items is usually charged to the buyer?

Impound fund balance on assumed loan
Proration of unpaid property taxes
Documentary transfer tax
Owner’s title policy premium

A

Impound fund balance on assumed loan

p.339

103
Q

In real estate finance, an abstract is a(n)

plot plan of a parcel of land.
opinion of title.
title insurance policy.
synopsis of the recorded history of a property.

A

synopsis of the recorded history of a property.

p.332

104
Q

In order to remove a cloud from a property’s title, the owner must file a(n)

suit to quiet title.
lis pendens suit.
eviction suit.
suit to foreclose.

A

Suit to quiet title

p.335

105
Q

If the property taxes and insurance premiums are due in November and a new loan closes on the following first day of January, how many months’ impounds will be charged to the borrower?

3 months
9 months
2 months
6 months

A

2 months

p.342

106
Q

In the real estate lending business, assignment refers to

sale of a loan on the secondary market.
changing the interest rate on a loan.
substitution of one borrower for another.
transferring the servicing of a loan.

A

sale of a loan on the secondary market.

p.347

107
Q

Title insurance guarantees the validity and accuracy of the

title search.
real estate transfer disclosures.
borrower’s loan application.
homeowner’s insurance policy.

A

Title search

p.333

108
Q

All of the following items are categorized as actual notices except a(n)

tenant in possession.
recorded lien.
unrecorded lien.
encroachment.

A

Unrecorded lien

p.332

109
Q

Which of the following amounts is the interest adjustment on a new $100,000 loan at 7% issued on March 20th, if the first payment is not due until May 1? (Use 360 days)

  $360.00
  $797.22
  $7,000.00
  $19.44
p.p. 343
100,000 × 0.07 = 7,000/360 = 19.44 × 41 = 797.22
A

$797.22

The reason for the use of 41 days is that “mortgage interest payments are normally paid in arrears.” (Please See page 341 of California Real Estate Finance, ninth edition, paragraph entitled Interest Adjustments). Thus, add the 11 days for March, and the 30 days for April totaling 41 days times $19.4444, daily proration, equals $797.22 interest adjustment. The first full mortgage payment is not due until May 1st and that payment is for the 30 days in May (in arrears).

110
Q

Which of the following items is usually charged to the seller?

Loan origination fees
Lender’s title policy
Proration of prepaid insurance premiums
Prepayment penalties

A

Prepayment penalties

p.342

111
Q

Freddie Mac is a(n)

sub-agency of the DVA.
originator of junior loans.
insuring agency of the FHA.
secondary market player.

A

secondary market player.

p.361

112
Q

When Fannie Mae purchases mortgage loans from lending institutions, they are packaged into

debentures.
mortgage-backed securities.
real estate mortgage investment conduits.
pass-through certificates.

A

mortgage-backed securities.

p.358

113
Q

Which agency guarantees that investors will receive timely payments of principal and interest on mortgage-backed securities backed by the FHA or DVA?

Freddie Mac
Fannie Mae
Federal Home Loan Bank
Ginnie Mae

A

Ginnie Mae

p.363

114
Q

Which of the following types of loans do lenders generally keep in their own investment portfolios rather than sell on the secondary market?

Adjustable-rate
Jumbo
Reverse mortgage
Conventional

A

Jumbo

p.360

115
Q

The Federal Housing Finance Agency (FHFA) regulates

HUD, FHA, and Cal-Vet.
HUD, FHA, and the Federal Reserve.
Fannie Mae, Freddie Mac, and the FHLB.
FHLB, FHA, and DVA.

A

Fannie Mae, Freddie Mac, and the FHLB.

p.355

116
Q

Loan originators that sell mortgages to Fannie Mae can

continue to count the loans as assets in their portfolios.
follow their own underwriting standards.
repurchase the loans at a later date.
continue to service the loans.

A

continue to service the loans.

p.357

117
Q

Fannie Mae is a

a quasi-private corporation with government oversight
government agency regulated by the Fed.
branch of the U.S. Treasury.
sub-agency of HUD.

A

A quasi-private corporation with government oversight

p.356

118
Q

Fannie Mae currently buys loans at

par.
a free market auction.
an administered price.
a premium.

A

An administered price

p.356

119
Q

All of the following agencies are participants in the secondary mortgage market except

CalHFA.
Fannie Mae.
Freddie Mac.
Ginnie Mae.

A

CalHFA

p.354

120
Q

The term used to describe loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines is

regular.
conforming.
standard.
conventional.

A

conforming

P.360

121
Q

After a foreclosure of an FHA insured loan, the lender will receive compensation in the form of

10% of the balance owed.
5% of the balance owed.
the balance owed plus costs.
title to the property.

A

the balance owed plus costs.

p.390

122
Q

Recasting a real estate loan involves all of the following activities except

clearing any mechanic’s or materialman’s liens.
forgiving any delinquent payments.
designing a new loan to take the place of the old.
clearing any junior liens.

A

forgiving any delinquent payments.

p.377

123
Q

Most foreclosures occur as a result of the nonpayment of

insurance premiums.
principal and interest.
needed repairs.
property taxes.

A

principal and interest.

p.372

124
Q

Under a DVA foreclosure, the lender usually recovers the

top portion of the loan balance.
property’s title.
full amount of the loan balance.
nothing.

A

top portion of the loan balance.

p.390

125
Q

In California, borrowers pay a fee for a service company that track the borrowers’ payments of

hazard insurance premiums.
utility payments.
private mortgage insurance.
property taxes.

A

property taxes.

p.372

126
Q

A judicial foreclosure involves all of the following actions except

lis pendens.
strict forfeiture.
judgment decree.
public auction.

A

Strict forfeiture

p.383

127
Q

Prior to actually foreclosing, many lenders attempt all of the following strategies except a(n)

payment moratorium.
workout.
advance of more funds.
loan recasting.

A

advance of more funds.

p.376

128
Q

The clause in a real estate loan that triggers a foreclosure in the event of a default is the

acceleration clause.
escalation clause.
call clause.
due-on-sale clause.

A

acceleration clause.

P.372

129
Q

As a practical matter, a foreclosure should occur only when the
I. market value of the collateral is less than the balance of the loan.
II. borrowers can no longer make the payments.

Both I and II
Neither I nor II
I only
II only

A

Both I and II

p.375

130
Q

A Deed in Lieu of Foreclosure accepted by the lender

ends the borrower’s liability to the rights of third parties having an interest in the property.
completely clears the borrower’s credit record.
is valid to avoid the inclusion of the property as an asset in a bankruptcy.
ends the borrower’s liability for the loan balance.

A

ends the borrower’s liability for the loan balance.

p.375

131
Q

In an equity participation agreement, lenders assume a second role as

tenant.
insurer.
owner.
manager.

A

Owner

p.398

132
Q

Under a split-fee financing agreement, a lender purchases land, leases it to a developer, and then

shares development and management decisions.
sells it to the developer at the end of the lease term.
finances the improvements to be constructed.
sells securities representing interests in the development.

A

finances the improvements to be constructed.

p.399

133
Q

The portion of realized capital gain that is subject to income tax in the year received is called

liability gain.
net gain.
recognized capital gain.
retained capital gain.

A

Recognized capital gain

p.400

134
Q

A sale-leaseback offers the property owner an opportunity to

avoid paying real estate transfer fees.
retain ownership over the property.
refinance at a lower interest rate.
free capital for other investments.

A

free capital for other investments.

p.404

135
Q

Investors who use pyramiding anticipate that the

demand for property will decline.
lender will consolidate loans.
interest rates will fall.
original property will increase in value.

A

original property will increase in value.

p.401

136
Q

In real estate finance, a kicker refers to a(n)

discount.
low interest rate.
bonus payment.
unseen risk.

A

bonus payment.

Page 398

137
Q

If the lease in a sale-leaseback is written for 30 years or longer, the IRS tends to consider the transaction a(n)

equity participation.
1031 exchange.
seller refinance.
prohibited transaction.

A

1031 exchange

p.396

138
Q

Money acquired by refinancing is

subject to capital gains tax.
not taxable until the property is sold.
subject to taxes upon the completion of the refinance process.
subject to ordinary income tax .

A

not taxable until the property is sold.

P.400

139
Q

An investor who periodically refinances owned properties and then uses proceeds from the new loans to purchase new properties is

exchanging.
pyramiding.
prorating.
split-fee financing.

A

Pyramiding

p.401

140
Q

A seller might refinance a property prior to a planned sale in order to secure a loan

with an adjustable rate of interest.
that can be assumed by the buyer.
with a lower interest rate.
that requires a lower down payment.

A

that can be assumed by the buyer.

P.397

141
Q

Which of the following single deposits must be made to accumulate $10,000 in five years at 8% interest (refer to the table on page 450 of the Finance textbook)?

$2,504.57
$6,000.00
$6,805.96
$1,704.56

A

$6,805.96

p.450

142
Q

Using the rule-of-thumb approach, which of the following amounts will a 15% investor pay for a one-year old, three-year loan for $10,000 payable at 10% interest only?

$10,000
$9,000
$8,500
$7,000

A

$9000

p.When buying a loan, sometimes referred to as paper, the rule-of-thumb approach states, “take the difference of the nominal interest rate (the interest rate named on the loan) and the expected rate (the discount rate) and multiply it by the number of years the loan has to run.” (page 446)
Pg. 446
The difference between the nominal rate of 10% and the discount rate of 15% is 5%. The loan has two years remaining. Five percent difference times two years = 10% discount factor. Ten percent times $10,000 = $1,000. $10,000 minus the discount of $1,000 = $9,000. Thus, the investor buys a $10,000 loan for $9,000. However, the borrower must pay back the full amount of the $10,000 loan to the investor. Therein lies the potential for the investor’s profit.

143
Q

Simple interest is described as interest paid on

interest earned.
the total loan.
the principal balance only.
savings accounts.

A

the principal balance only.

p.412

144
Q

Which of the following regular annual deposits must be made to accumulate $10,000 in ten years at 8% (refer to the table on page 450 of the Finance textbook)?

$1,000.00
$4,631.98
$1,490.31
$690.29

A

$690.29

p.450

145
Q

When points are charged to make a loan, the effective rate of interest is

equal to the nominal rate.
reported to Fannie Mae.
higher than the nominal rate.
lower than the nominal rate.

A

higher than the nominal rate.

p.416

146
Q

What is the interest portion of the first payment on a $2,500 loan to be repaid in 12 equal monthly payments at 9% interest?

$225.00
$18.75
$208.33
$227.08

A

$18.75

p.438

147
Q

The present value of money to be received in the future is worth

more than its face value.
less than its face value.
whatever the market indicates.
exactly its face value.

A

less than its face value.

p.424

148
Q

Which of the following annual payments is required to amortize a $10,000 loan at 8% interest for 15 years (refer to page 450 of the Finance textbook)?

$368.29
$3,152.48
$1,168.30
$666.66

A

$1,168.30

p.450

149
Q

When employing an add-on interest schedule, the effective rate of interest is

discounted.
doubled.
waived.
halved.

A

Doubled

p.414

150
Q

Compound interest is described as interest paid on

the total principal owed.
installment loans.
interest earned.
the principal balance only.

A

Interest earned

p.417

151
Q

List types of concurrent ownerships.

A
  • Tenants in common
  • Partnerships
  • Community property
  • Community property with right to survivorship
  • Joint tenancy

RE (34 decks)

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